Around 1870, economic thought changed. The change was called the Marginal Revolution, as I mentioned in the previous lecture.
It dealt with decisions at the margin, which you can translate as decisions about the next one. It refers to the process of making choices
by comparing the **additional benefits** and **additional costs** of a small change in an existing situation, rather than evaluating the total benefits or costs from scratch.
Economic thought wasn't anymore about objects and their properties, about the labor invested in their production or the cost of production to determine the value of these objects.
The value of products and services was now based on their utility for humans, based on human preferences and desires.
You have to study for an exam. Should I study 0 hours or 10 hours? An all-or-nothing decision. The Marginal Decision approach would be:
You have studied for three hours. Now what is the marginal benefit of adding a 4th hour? The extra points you might gain on the exam from that one extra hour.
However, the marginal cost of a 4th hour could be the lost sleep, relaxation, or social time from that one extra hour.
If the benefits are higher than the costs, you invest in an extra hour. Then re-evaluate for the 5th hour.
Eventually, the extra benefit drops. You're tired, you know most of it, and the extra cost rises.
You're exhausted. When the benefits don't increase and are equal to the costs, you stop adding extra hours of study. That is how you maximize your benefit.
You have a factory that produces chairs. Should you hire 0 or 50 workers, an all-or-nothing decision? The marginal approach would be:
You have 10 workers. Should you hire an 11th? Marginal benefit could be the extra output, for instance, 10 more chairs per day, that the 11th worker produces.
The marginal cost, that is, the cost of the next one, would be the extra wage you pay to that one worker. Hire as long as the extra revenue from chairs is higher than the extra wage.
Why was this approach revolutionary? Before the Marginal Revolution, classical economists often thought in total or average terms:
They argued that the total labor required to produce, for instance, a diamond- lots of mining and cutting- makes it valuable.
Water has huge total utility, though essential for life, but a low price. Diamonds have low total utility, just decoration, but a high price.
Marginal analysis solved this paradox instantly:
Water is abundant, so the marginal unit, the next glass you drink, has very low value because you already have plenty.
Diamonds are scarce, so the marginal diamond, the next diamond, has very high value because it's an extra luxury you don't already have.
Decisions at the margin mean: base your choices on the next unit, the incremental change. Compare what you gain from one more unit versus what you give up for that unit.
Almost all real-life relevant economic decisions, for instance, how much to work, save, produce, or consume, are made at the margin, not as all-or-nothing choices.
An interesting detail is that this line of thought was developed independently by three economic thinkers.
The Marginal Revolution moved economics from looking backward, costs incurred, to looking forward, utility to be gained.
It moved the center of gravity from the factory floor to the human mind. It taught us that value is not a fact of physics. It is a relationship between a person and a thing at a specific moment.
We already discussed William Stanley Jevons. The other two, Menger (Austria) and Walras (France), I'll present to you in coming lectures.
For now, we can conclude, based on Jevons' ideas, that economics. Thus, the value of products and services is guided by our marginal decision: does taking another one increase my pleasure or might even cause pain?
Main Sources:
MacMillan The Encyclopedia of Philosophy, 2nd edition
of Economic Thought (2012)
TABLE OF CONTENTS -----------------------------------------------------------------
1 - 100 Philosophers 9 May 2009 Start of
2 - 25+ Women Philosophers 10 May 2009 this blog
3 - 25 Adventures in Thinking 10 May 2009
4 - Modern Theories of Ethics 29 Oct 2009
5 - The Ideal State 24 Febr 2010 / 234
6 - The Mystery of the Brain 3 Sept 2010 / 266
7 - The Utopia of the Free Market 16 Febr 2012 / 383
8. - The Aftermath of Neo-liberalism 5 Sept 2012 / 413
9. - The Art Not to Be an Egoist 6 Nov 2012 / 426
10 - Non-Western Philosophy 29 May 2013 / 477
11 - Why Science is Right 2 Sept 2014 / 534
12 - A Philosopher looks at Atheism 1 Jan 2015 / 557
13 - EVIL, a philosophical investigation 17 Apr 2015 / 580
14 - Existentialism and Free Will 2 Sept 2015 / 586
15 - Spinoza 2 Sept 2016 / 615
16 - The Meaning of Life 13 Febr 2017 / 637
17 - In Search of my Self 6 Sept 2017 / 670
18 - The 20th Century Revisited 3 Apr 2018 / 706
19 - The Pessimist 11 Jan 2020 / 819
20 - The Optimist 9 Febr 2020 / 824
21 - Awakening from a Neoliberal Dream 8 Oct 2020 / 872
22 - A World Full of Patterns 1 Apr 2021 / 912
23 - The Concept of Freedom 8 Jan 2022 / 965
24 - Materialism 7 Sept 2022 / 1011
25 - Historical Materialism 5 Oct 2023 / 1088
26 - The Bonobo and the Atheist 9 Jan 2024 / 1102
27 - Artificial Intelligence 9 Feb 2024 / 1108
28 - Why Am I Here 6 Sept 2024 / 1139
The Discussion
[13:27] .: Beertje :. (beertje.beaumont): Thank you, Herman
[13:27] Max Chatnoir: Thanks, Herman.
[13:29] Particle Physicist Bejiita (bejiita.imako): This is i think something I have heard when reading about, say high end audio. Do a speaker and amplifier system costing as much as a luxury house with cabling that i can use for welding, current-wise, sound much betteere them the Yamaha Cervin Vega combo i already have, hree that i think sound just great
[13:29] Particle Physicist Bejiita (bejiita.imako): diminishing return
[13:29] herman Bergson: So, you almost could say that the price of a product isn't based on its cost of production, but on our feeling....Should I buy another one?
[13:30] Max Chatnoir: And maybe in Bejiita's case, What can I do for myself?
[13:31] Particle Physicist Bejiita (bejiita.imako): Same with this device I just bought, Im learning to use these at the moment from a friend, but I dont have one myself, fins this portable one at a goo price point, however, u need to be lucky to grab one because EVERYONE else wants this thing also (scarcity?)
[13:31] Particle Physicist Bejiita (bejiita.imako): https://www.akaipro.com/mpc-sample/
[13:31] Particle Physicist Bejiita (bejiita.imako): its this thing an it is all the rage now
[13:31] herman Bergson: Could you keep your remarks more concise, Bejiita...please
[13:32] Particle Physicist Bejiita (bejiita.imako): hmm its just hard for to explain it all but
[13:32] Particle Physicist Bejiita (bejiita.imako): thats some examples i have matching this
[13:33] herman Bergson: As I said.. you almost could say that the price of a product isn't based on its cost of production, but on our feeling....Should I buy another on?
[13:33] Particle Physicist Bejiita (bejiita.imako): yes
[13:33] Max Chatnoir: So the decision is with the consumer, not the manufacturer?
[13:33] herman Bergson: Thus, the consumer becomes the main character in economics
[13:33] herman Bergson: yes, Max
[13:34] Particle Physicist Bejiita (bejiita.imako): i get the concept i think
[13:34] .: Beertje :. (beertje.beaumont): most pe0ple in those days were very poor; did they have a choice to concider to buy something else?
[13:34] herman Bergson: What is a manufacturer that produces worthless, unusable products?
[13:35] Particle Physicist Bejiita (bejiita.imako): I pondered long still over if i should eat it or not, like do I need this thing really vs, but I want to try something fun and new this year
[13:35] .: Beertje :. (beertje.beaumont): China produced useless products, still people are buying this
[13:35] herman Bergson: Well, Beertje Ford paid his employees enough so they could afford a T-Ford in those days
[13:35] Particle Physicist Bejiita (bejiita.imako): ah
[13:35] Particle Physicist Bejiita (bejiita.imako): yes
[13:36] .: Beertje :. (beertje.beaumont): you can't eat from a T-Ford
[13:36] bergfrau Apfelbaum: @ what is a manufacturer who produces worthless, unusable products? --> an artist?
[13:36] herman Bergson: The car was not intended to be eaten :-)
[13:36] Max Chatnoir: :-)
[13:37] .: Beertje :. (beertje.beaumont): i know, but there were costs like garage and fuel
[13:37] herman Bergson: Such a manufacturer goes bankrupt, Bergie
[13:38] Particle Physicist Bejiita (bejiita.imako): The car moves u around and this new device will allow me to create sample base music whereveer i am, like a musical instrument i can carry with me all the time and do like live shows, that would be great fun
[13:38] Particle Physicist Bejiita (bejiita.imako): so do I "need" it?
[13:38] herman Bergson: The main point here is that we as consumers set the price of products (more or less manipulated of course by advertisement)
[13:38] .: Beertje :. (beertje.beaumont)And when they were used to driving a car, after a few years they wanted a new one, did T-Fort buy that too for them?
[13:39] herman Bergson: The workers were able to buy a T-Ford....that was the case
[13:39] Max Chatnoir: But maybe not every year.
[13:40] herman Bergson: I don't know the details...but of course not...
[13:40] Particle Physicist Bejiita (bejiita.imako): or if u are a collector, even if u have several already
[13:40] herman Bergson: That is a different psychology, Bejiita
[13:41] herman Bergson: But nevertheless...the question is...buying a next one...does it increase my pleasure?
[13:41] Particle Physicist Bejiita (bejiita.imako): Like this is my first sampler but my friend is learning me this music are at moment collecting these. so would this one be less valuable to him ( he dont have the sample model yet)
[13:41] Max Chatnoir: Well, it might if you actually can use two cars.
[13:42] .: Beertje :. (beertje.beaumont): yes I think so, going back to use your horse is difficult
[13:42] Particle Physicist Bejiita (bejiita.imako): aha
[13:42] herman Bergson: I know people who own dozens of cars...real collectors
[13:42] Particle Physicist Bejiita (bejiita.imako): yes
[13:42] Max Chatnoir: But do they drive them or just put them on display?
[13:43] herman Bergson: The latter of course....
[13:43] Max Chatnoir: Car of the week, maybe?
[13:43] Particle Physicist Bejiita (bejiita.imako): or like say Jay Leno
[13:43] herman Bergson: Seems to be a terrific feeling to own all those cars :-)
[13:44] .: Beertje :. (beertje.beaumont): afraid to lose all of them
[13:44] herman Bergson: Nice feeling too, Beertje :-)
[13:44] .: Beertje :. (beertje.beaumont): if you own a lot, you can lose a lot
[13:44] .: Beertje :. (beertje.beaumont): the nice feeling of having too many cars doesn't last long
[13:45] herman Bergson: No, it is the kick of obtaining another one...
[13:45] herman Bergson: That is what happens in big money too
[13:45] .: Beertje :. (beertje.beaumont): never enough
[13:46] Particle Physicist Bejiita (bejiita.imako): collecting things is a thing in itself, i thought so myself that I can start with that one and at least collect the smaller models if I like using it because they are not that expensive + they are portable even they dont have all bells and whistles of the larger versions but still enough
[13:46] Particle Physicist Bejiita (bejiita.imako): thats how i thought, + a new art for me
[13:46] Particle Physicist Bejiita (bejiita.imako): new challenge
[13:46] Particle Physicist Bejiita (bejiita.imako): so worth it i say
[13:46] herman Bergson: When you own a hundred million dollars.... another ten are not interesting, but the kick to obtain them seems to be the drive
[13:46] Particle Physicist Bejiita (bejiita.imako): thats how i reasoned when I ordered mine yesterday
[13:47] Particle Physicist Bejiita (bejiita.imako): hmm sseems so indeed Herman
[13:48] Particle Physicist Bejiita (bejiita.imako): at least for some
[13:48] Particle Physicist Bejiita (bejiita.imako): or its a comptition between rivals, of who has the most
[13:48] herman Bergson: So, I guess we have now reached consumer-based economics
[13:48] Particle Physicist Bejiita (bejiita.imako): status
[13:49] Particle Physicist Bejiita (bejiita.imako): aha
[13:49] herman Bergson: Let's see what Menger and Walras have to add to this...
[13:49] Particle Physicist Bejiita (bejiita.imako): and the timing was perfect
[13:49] Particle Physicist Bejiita (bejiita.imako): ㋡
[13:49] Max Chatnoir: :-)
[13:51] herman Bergson: And I really get a feeling that within a few decades after 1870, and this revolution, greed will become one of the players in economics
[13:51] herman Bergson: We'll see....
[13:51] herman Bergson: So thank you all again...
[13:51] herman Bergson: Class dismissed ,,,
[13:52] Particle Physicist Bejiita (bejiita.imako): YAY! (yay!)
[13:52] .: Beertje :. (beertje.beaumont): Thank you Herman
[13:52] Max Chatnoir: Thanks again, Herman. Something to ponder...
